Small business loans examined

Editor’s note: Michelle Stockman works with Little Rock-based Arkansas Capital Corp. to promote entrepreneurship development around the state. Stockman earned a bachelor’s degree from Loyola University-Chicago in communications and fine arts, and earned a master’s in entrepreneurship from Western Carolina University. Her thoughts on business success appear each week on The City Wire.

The Small Business Administration has announced various stimulus programs for small businesses throughout the year. However, understanding what loan programs the SBA offers can often seem mysterious. While the SBA is an excellent option for many small business owners seeking debt capital financing, the lending programs are not for everyone.

To start, the SBA offers several loan options that include a special stimulus refinancing loan and a loan pool established for veterans. Additionally, the SBA’s two flagship loan pools include the SBA 504 loan and the SBA 7 (a) loan. Both loans support the needs of small businesses to obtain assets that support the vitality of the business, yet each loan has different parameters.

The SBA 504 loan was established for the purchase and/or improvement of commercial real estate, machinery and equipment with a 10 year life. The loan amounts range from $1.5 million to $4 million depending on eligibility requirements. 504’s fixed rate loan has a 20 year loan term for commercial real estate or a 10 year loan term for machinery or equipment. The SBA requires business owners to pay loan closing fees and submit a “good faith” deposit to secure the loan. Lastly, the 504 loan will seek a second lien on all assets being financed as collateral for the loan.

While the SBA 7 (a) loan has some similarities, this loan program’s purpose is for the purchase and/or improvement of commercial real estate, machinery, equipment, leasehold improvements, furniture and fixtures, inventory and other business assets, working capital, refinance existing debt, purchase an existing business and loan closing costs. SBA 7 (a) loans range between $100,000 and $2 million with a variable rate based on the spread over the Wall Street Journal prime rate. However, the loan is fully amortizing over the life of the loan. The loan terms are established up to 25 years, charge a small loan guarantee fee and require a “good faith” deposit. The SBA takes a first lien on all the assets being financed through the loan.

Small business owners who are interested in SBA loans should talk with their bankers first about the lending opportunities the bank has to offer. Local bankers are an excellent resource in developing loan packages to meet small business financing needs. Arkansas Capital Corporation (ACC) was established in 1957 to serve the lending needs of Arkansas small businesses. ACC works with banks and entrepreneurs to develop the right SBA loan package for entrepreneurs.

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Stockman can be reached at [email protected]